We demonstrate the existence of multiple dimensions of private information in the long-term care insurance market. Two types of people purchase insurance: individuals with private information that ...they are high risk and individuals with private information that they have strong taste for insurance. Ex post, the former are higher risk than insurance companies expect, while the latter are lower risk. In aggregate, those with more insurance are not higher risk. Our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence. The results also suggest a general test for asymmetric information.
The choice of a retirement date is one of the most important decisions facing older workers. It is a decision that will affect their economic well-being for the remainder of their lives. One factor ...that undoubtedly impacts this choice is the worker's health. However, the many studies examining the relationship between health and retirement have failed to agree on the relative importance of health compared with financial variables. Efforts to do so have been hampered by the difficulty of correctly measuring health status. Much of the concern centers on the fear that subjective reports of health are biased by individuals using poor health as a justification for early retirement. This paper takes advantage of a unique measure of labor force attachment, the subjective probability of continued work, to reexamine the role of health and changes in health status. By focusing exclusively on workers, I eliminate the concern about justification bias among retired individuals and find that subjective reports of health do have important effects on retirement, effects that are arguably stronger than those of the financial variables. The effects of subjective health remain large even when the model includes more objective measures of health, such as disease conditions. I also find that changes in retirement expectations are driven to a much greater degree by changes in health than by changes in income or wealth.
Objective: Effects of four types of automation support and two levels of automation reliability were examined. The objective was to examine the differential impact of information and decision ...automation and to investigate the costs of automation unreliability. Background: Research has shown that imperfect automation can lead to differential effects of stages and levels of automation on human performance. Method: Eighteen participants performed a “sensor to shooter” targeting simulation of command and control. Dependent variables included accuracy and response time of target engagement decisions, secondary task performance, and subjective ratings of mental workload, trust, and self-confidence. Results: Compared with manual performance, reliable automation significantly reduced decision times. Unreliable automation led to greater cost in decision-making accuracy under the higher automation reliability condition for three different forms of decision automation relative to information automation. At low automation reliability, however, there was a cost in performance for both information and decision automation. Conclusion: The results are consistent with a model of human-automation interaction that requires evaluation of the different stages of information processing to which automation support can be applied. Application: If fully reliable decision automation cannot be guaranteed, designers should provide users with information automation support or other tools that allow for inspection and analysis of raw data.
Parents transfer a great deal to their adult children, and we have rich theoretical models providing a framework for these transfers. However, both the models and existing empirical work typically ...examine behavior in the cross section. To date, we know little about the dynamic aspects of family transfers. Here I examine transfers over a span of 17 years and find substantial changes in recipiency over time and a strong negative correlation between transfers and transitory income. I also find that events such as job loss and divorce are strong predictors of parental transfers and, although rare, are typically associated with larger transfers than income alone might predict. Finally, transfers are distributed unequally across siblings, and perhaps surprisingly, the distribution of transfers becomes even more unequal when examined over an extended period of time than in any single year. The evidence presented here thus suggests that dynamic analyses can provide insights into behavior that are impossible to obtain in a static context.
•There is substantial year to year variation in transfers from parents to children.•There is large variation in amounts received by siblings that grows over time.•Transfers are often made in response to events such as a divorce or job loss.
We use data from the Health and Retirement Study (HRS) to document the distribution of out-of-pocket medical spending among individuals aged 55 and over in the US. The HRS data permit us to examine ...out-of-pocket spending close to the end of life and to analyse the components of spending in more detail than has been done in previous studies. We find that spending risk rises sharply at older ages and near the end of life. While the median individual spent $6,328 out-of-pocket in the last year of life, 5 per cent were reported to have spent over $62,040. Our results also indicate that out-of-pocket spending is highly concentrated, with the top 10 per cent of spenders accounting for 42 per cent of all spending, and persistent, even over periods spanning many years. Finally, while certain categories of spending are very responsive to income and wealth, we do not find overall spending to be highly concentrated along these dimensions. Viewed within the international context, our results suggest that the fraction of households facing very high out-of-pocket spending is substantially greater in the US than in other developed countries.
Although expectations, or more precisely subjective probability distributions, play a prominent role in models of decision making under uncertainty, we have had very little data on them. Based on ...panel data from the Health and Retirement Study, we study the evolution of subjective survival probabilities and their ability to predict actual mortality. In panel, respondents modify their survival probabilities in response to new information such as the onset of a new disease condition. Subjective survival probabilities predict actual survival: those who survived in the panel reported survival probabilities approximately 50% greater at baseline than those who died.
We demonstrate the existence of multiple dimensions of private information in the long-term care insurance market. Two types of people purchase insurance: individuals with private information that ...they are high risk and individuals with private information that they have strong taste for insurance. Ex post, the former are higher risk than insurance companies expect, while the latter are lower risk. In aggregate, those with more insurance are not higher risk. Our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence. The results also suggest a general test for asymmetric information.
Parents often appear to play favorites when distributing financial resources among their adult children. Evidence of unequal transfers is consistent with a number of models of optimizing behavior, ...each of which predicts parents will favor certain children in allocating resources. This analysis indicates that a variety of motives highlighted in the literature come into play when mothers determine the allocation of their estates. Patterns indicate that the motive for mothers' bequest intentions differ across families. Addressing the longstanding policy issues requires models that can incorporate alternative motives as well as empirical evidence on when and for whom the alternative motives drive intra-family transfer decisions.
Common diseases, particularly dementia, have large social costs for the U.S. population. However, less is known about the end-of-life costs of specific diseases and the associated financial risk for ...individual households.
To examine social costs and financial risks faced by Medicare beneficiaries 5 years before death.
Retrospective cohort.
The HRS (Health and Retirement Study).
Medicare fee-for-service beneficiaries, aged 70 years or older, who died between 2005 and 2010 (n = 1702), stratified into 4 groups: persons with a high probability of dementia or those who died because of heart disease, cancer, or other causes.
Total social costs and their components, including Medicare, Medicaid, private insurance, out-of-pocket spending, and informal care, measured over the last 5 years of life; and out-of-pocket spending as a proportion of household wealth.
Average total cost per decedent with dementia ($287 038) was significantly greater than that of those who died of heart disease ($175 136), cancer ($173 383), or other causes ($197 286) (P < 0.001). Although Medicare expenditures were similar across groups, average out-of-pocket spending for patients with dementia ($61 522) was 81% higher than that for patients without dementia ($34 068); a similar pattern held for informal care. Out-of-pocket spending for the dementia group (median, $36 919) represented 32% of wealth measured 5 years before death compared with 11% for the nondementia group (P < 0.001). This proportion was greater for black persons (84%), persons with less than a high school education (48%), and unmarried or widowed women (58%).
Imputed Medicaid, private insurance, and informal care costs.
Health care expenditures among persons with dementia were substantially larger than those for other diseases, and many of the expenses were uncovered (uninsured). This places a large financial burden on families, and these burdens are particularly pronounced among the demographic groups that are least prepared for financial risk.
National Institute on Aging.
The strong dislike evidenced by the American public towards the estate tax suggests that the wealthy wish to transfer resources to their heirs tax-free and would thus exploit mechanisms allowing them ...to reduce the tax burden whenever possible. However, I find strong evidence that the wealthy fail to utilize what is perhaps the simplest method of tax avoidance--that of making transfers to eventual heirs up to the annual exclusion. Instead they transfer far less than the amount permitted by the tax code, whether measured in cross-section or over time. In failing to give more, they forgo significant tax savings. PUBLICATION ABSTRACT
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